Data Room: US leveraged lending dips

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Private equity firms curbed their use of loans last year, according to Thomson Reuters. The amount borrowed in 2015 fell by 28.7 percent to $284.8 billion from $399.4 billion a year earlier. Of that, just $73.37 billion was used to fund new buyouts. 

In the final quarter of 2015, private equity firms borrowed $13 billion to fund buyouts, down from $21 billion in the same period a year before, and $29 billion to fund other, non-LBO, activities.

Debt ratios also fell accordingly. In Q4 2015, the average debt ratio in buyouts was 5.6x debt to EBITDA. This multiple is the lowest since Q4 2011 and below the previous quarter’s 6.2x and Q4 2014’s 6.5x.

Although loan usage is on the decline in the short term, these figures are still historically high, says Ioana Barza, director of analysis at Thomson Reuters Capital Markets Insight.

These declines may be a result of the Leveraged Lending Guidance’s requirement on banks to adhere to 6x total debt-to-EBITDA. This has led to leverage tightening in general, but regulators are also looking at other metrics such as amortisation and debt payment ability, Barza says.

Large buyouts levered 7x EBITDA or more accounted for just 13 percent of all deals last year, down from 26 percent in 2014. Those with 6x EBITDA or more in leverage accounted for 57 percent, compared with 60 percent in the previous year.